The Low Incomes Tax Reform Group (LITRG), which is an initiative of the Chartered Institute of Taxation, has expressed its concern that the Government’s determination to extend the ‘off-payroll’ rules to the private sector in April 2020 will have a severe impact on lower paid workers.
Whilst the LITRG welcomed the exemption from the rules for small businesses, thereby relieving them of the huge administrative burden of applying the legislation, it warned that some low-paid workers contracted to medium and large businesses may be forced to abandon their limited companies. This could then leave them with lingering messy compliance issues for years to come as these workers often have little understanding of how a limited company operates and struggle to separate their own affairs from that of their company’s. As such, there is a strong likelihood that their limited company may not be closed down correctly.
Victoria Todd, Head of LITRG Team, says about the potential mass exodus from personal service companies;
“If businesses do respond by forcing the abandonment of limited companies, it could happen on a large scale with many workers affected. The Government will need to be prepared and will need to consider their response very carefully.”
Many low-paid temporary workers who obtain work via agencies and other employment businesses, only form their own company out of compulsion because that is the only way they can secure such work. This, of course, is driven by the engager’s desire to save on paying employers’ NIC and avoid having to offer the worker employment rights and privileges. As well, there is often the opportunity for the employment business to earn additional income by providing the worker with accountancy services.
The new rules now seriously threaten the use of limited companies by low-paid workers, causing Victoria Todd to comment,
“If the intermediary concludes that the new rules effectively neutralise the tax advantages of these arrangements, it is likely that workers will be pulled out of limited companies. If what we saw after public sector changes is anything to go by, they could then find themselves encouraged into other dubious arrangements that help engagers protect their profitability.”
On a positive note, the LITRG did welcome HMRC’s commitment that they will not use the changes to carry out historical IR35 enquiries. Hopefully, the department will be true to their word but I wouldn’t wholly trust them given the current antics and attitude of those officers involved in employment status!